Both the dollar and Treasury yields quickly recovered from a knee-jerk selloff on Friday as investors wrote off a surprisingly weak employment report as a weather-related anomaly.
But if Friday’s retail-sales report is weak, the implications for the so-called reflation trade could fundamentally change the outlook for the dollar, Treasury yields and U.S. stocks.
The reason, market strategists say, is that the postelection surge in consumers’ optimism, as measured by so-called “soft” survey data provided by The Conference Board and the University of Michigan, has yet to translate into an actual pickup in consumption. In March, a survey gauging consumers’ attitudes related to the U.S. business environment jumped to its highest level in 16 years.
This is a huge problem for the reigning growth narrative, which contends that President Donald Trump’s purportedly pro-growth policies will stoke inflation and cause economic growth to accelerate, possibly forcing the Federal Reserve to raise interest rates more quickly than the market is anticipating.